As legal cannabis continues to spread, entrepreneurs are stepping up and taking notice. The winners will heed these four key pieces of advice.
While cannabis’s future has dimmed ever so slightly over the last year as the regulatory environment has become slightly less certain and economic legislation has feathered the breaks, cannabis still remains one of the most attractive industries for entrepreneurs looking to start businesses in promising markets.
However, for anyone looking to get into this growing industry, there are several questions to ask and considerations to weigh before jumping in with both feet. Like any dynamic market, there are opportunities for big wins, but also big losses. Knowledge, foresight, and careful planning can increase your odds.
As a business coach who helps companies scale, I’ve worked with several cannabis-based businesses with interesting and exciting business models. And along the way, I’ve met several entrepreneurs, consultants, investors, and advisors who are bullish on the sector, but also advise caution.
1. Pay for good advice, and follow it.
The laws around production, distribution, and sale of cannabis-based products vary greatly from state-to-state and they are constantly changing and being interpreted differently. Invest in a good lawyer, or two, who knows the laws and has experience working with them in the state and county you’re planning on doing business in.
David Feldman, Partner at the law firm Duane Morris, stresses that it’s critical for any entrepreneur entering the cannabis space to have lawyers with real experience in the area. He explains that the legal complexity of the cannabis business is significant and there are a morass of state regulations that differ dramatically from state to state, and the federal government’s attitude toward enforcement continues to shift.
2. Get a good banker, or four.
The fact remains that cannabis is still illegal at the federal level and many banks and financial institutions will not do business with companies that deal in weed. Make sure your banking partner is comfortable with your involvement in the industry before you become overly reliant on them.
Rick Martinez, a cannabis entrepreneur and investor out of San Antonio, Texas, says the biggest thing to pay attention to early on is your merchant processing. He suggests you have a backup, a backup to the backup, and then one more backup. While most people agree that the banking industry will create more stable solutions in the coming years, it’s still extremely volatile and is a significant risk for companies in the business.
3. Have a firm grasp of the fundamentals.
Many entrepreneurs get into the cannabis business thinking they just need to grow and the money will magically follow. While it remains one of the most profitable crops, you still need a solid business model and the right management skills to turn your product into profits.
Vinay Tolia, founder and managing partner at Bengal Capital, says if you strip away the hype around the cannabis industry it’s really no different from other existing business models: in order to be successful, you must produce a quality product at a competitive price and sell/distribute as efficiently as possible.
Defining a clear core customer, core product/service, and core channel will help you accelerate growth. And getting a tight control over your cost of goods sold and overhead will ensure you are making a healthy profit that can use to fuel your growth.
4. Think outside the bud.
Many people get into cannabis thinking they will be either growing, distributing, or selling plant products themselves. While this is the core of the market and a huge part of the revenues in the business, there are a myriad of opportunities in the cannabis industry that have little to do with the plant itself.
Jenny Argie, founder of Baked at Home in Brooklyn, New York, is becoming the Betty Crocker of pot with her set of dry mixes that allow you to add your own canna-butter or canna-oil to make homemade treats. Argie is just one of hundreds of entrepreneurs carving out their own segment of the cannabis industry without running amok with federal law.
Serious and significant businesses are being built around technology, training, packaging, standardization, real estate, wellness, and many other ancillary products and services to support the market. There are literally hundreds of niches for willing players and serious money to be made.
Cannabis is a huge market with immense potential, but it’s not without its complexities and risks. While some will get lucky and strike it rich despite themselves, the majority of winners in the industry will be sharp business minds with savvy entrepreneurial skills.
By Bruce Eckfeldt founder and CEO, E&A, Gazelles business coach@beckfeldt
